The treasurer of a middle market, Import-export company has approached you for advice on how to best invest some of the firm's short-term cash balances. The company, which has been a client of the bank that employs you for a few years, has $220,000 that it is able to commit for a one-year holding period. The treasurer is currently considering two alternatives: (1) Invest all the funds in a one-year U.S. Treasury bill offering a bond equivalent yield of 4.10%, and (2) invest all the funds in a Swiss government security over the same horizon, locking in the spot and forward currency exchanges in the FX market. A quick call to the bank's FX desk gives you the following two-way currency exchange quotes, Swiss Francs per U.S. Dollar U.S. Dollar per Swiss Franc (CHF) 0.6840 0.6794 1.4620 Spot 1-year CHF futures a. Calculate the one year bond equivalent yield for the Swiss government security that would support the interest rate party condition. Do not round Intermediate calculations. Round your answer to two decimal places. D. Assuming the actual yield on a one-year Swiss government bond is 5.00%, which strategy would leave the treasurer with the greatest return after one year? Do not round intermediate calculations. Round your answer to two decimal places The one-year bond equivalent yield for the U.S. Treasury bill is Se, investing in a one-year Sect- is more profitable than investing in Select- c. Describe the transactions that an arbitrageur could use to take advantage of this apparent mispricing 1. An arbitrageur could borrow $220,000 domestically at 4.10%, convert it into CHF, buy Swiss government bonds, and enter into a forward contract to reconvert the proceeds after a year. After a year the sum invested in Swiss government bonds at 5.00 could be converted back into dostars at the forward rate of 0.6794 VCHF. Then the arbitrageur should repay the loan plus interest. So, net profit could be collected II. An arbitrageur could borrow 322,000 CHF in Switzerland at 5.00%, convert it into dollars, buy U.S. Treasury bills, and enter into a forward contrast to reconvert the proceeds after a year. Alter a year the sum invested in U.S. Treasury bits at 4.104 could be converted back into CHF at the forward rate of 1.4719 CHF/5. Then the arbitrageur should repay the loan plus interest. So, ret profit could be collected III. An arbitrageur could borrow $220,000 domestically at 4.10%, convert it into CHF, buy Swiss government bonds and enter into a forward contract to reconvert the proceeds after a year. After a year the sum invested in Swiss government bonds at 4.70% could be converted back into dollars at the forward rate of 0.6794 S/CHF. Then the arbitrageur should repay the loan plus interest. So, net pront could be collected TV. An arbitrageur could borrow 322.000 CHF in Switzerland at 5.00%, convert it into dollars, buy US Treasury bills, and enter into a forward contract to reconvert the proceeds after a year. After a year the sum invested in US Treasury at 4.19 could be converted back into CHF at the forward rate of 1.4719 CHF/5. Then the arbitrageur should repay the loan plus interest. So, net profit could be collected Calculate what the proft would be for a $220,000 transaction. Do not round intermediate calculations. Round your answer to the nearest cent. Use only the exchange rates provided in the table above in the problem statement for your calculators The treasurer of a middle market, Import-export company has approached you for advice on how to best invest some of the firm's short-term cash balances. The company, which has been a client of the bank that employs you for a few years, has $220,000 that it is able to commit for a one-year holding period. The treasurer is currently considering two alternatives: (1) Invest all the funds in a one-year U.S. Treasury bill offering a bond equivalent yield of 4.10%, and (2) invest all the funds in a Swiss government security over the same horizon, locking in the spot and forward currency exchanges in the FX market. A quick call to the bank's FX desk gives you the following two-way currency exchange quotes, Swiss Francs per U.S. Dollar U.S. Dollar per Swiss Franc (CHF) 0.6840 0.6794 1.4620 Spot 1-year CHF futures a. Calculate the one year bond equivalent yield for the Swiss government security that would support the interest rate party condition. Do not round Intermediate calculations. Round your answer to two decimal places. D. Assuming the actual yield on a one-year Swiss government bond is 5.00%, which strategy would leave the treasurer with the greatest return after one year? Do not round intermediate calculations. Round your answer to two decimal places The one-year bond equivalent yield for the U.S. Treasury bill is Se, investing in a one-year Sect- is more profitable than investing in Select- c. Describe the transactions that an arbitrageur could use to take advantage of this apparent mispricing 1. An arbitrageur could borrow $220,000 domestically at 4.10%, convert it into CHF, buy Swiss government bonds, and enter into a forward contract to reconvert the proceeds after a year. After a year the sum invested in Swiss government bonds at 5.00 could be converted back into dostars at the forward rate of 0.6794 VCHF. Then the arbitrageur should repay the loan plus interest. So, net profit could be collected II. An arbitrageur could borrow 322,000 CHF in Switzerland at 5.00%, convert it into dollars, buy U.S. Treasury bills, and enter into a forward contrast to reconvert the proceeds after a year. Alter a year the sum invested in U.S. Treasury bits at 4.104 could be converted back into CHF at the forward rate of 1.4719 CHF/5. Then the arbitrageur should repay the loan plus interest. So, ret profit could be collected III. An arbitrageur could borrow $220,000 domestically at 4.10%, convert it into CHF, buy Swiss government bonds and enter into a forward contract to reconvert the proceeds after a year. After a year the sum invested in Swiss government bonds at 4.70% could be converted back into dollars at the forward rate of 0.6794 S/CHF. Then the arbitrageur should repay the loan plus interest. So, net pront could be collected TV. An arbitrageur could borrow 322.000 CHF in Switzerland at 5.00%, convert it into dollars, buy US Treasury bills, and enter into a forward contract to reconvert the proceeds after a year. After a year the sum invested in US Treasury at 4.19 could be converted back into CHF at the forward rate of 1.4719 CHF/5. Then the arbitrageur should repay the loan plus interest. So, net profit could be collected Calculate what the proft would be for a $220,000 transaction. Do not round intermediate calculations. Round your answer to the nearest cent. Use only the exchange rates provided in the table above in the problem statement for your calculators